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Companies Are Using Sustainability To Pursue Broader Goals
November 1, 2011
More companies are using sustainability to improve processes, pursue growth, and add value to their companies than focusing solely on reputation according to a study recently released by McKinsey & Company. Based on a July 2011 online survey of over 3200 executives from a wide range of regions, industries, company sizes and functional specialties, the study found that, compared to a similar study last year, larger shares of executives say sustainability programs make a positive contribution to their companies’ short- and long-term value. And more executives say their company’s top reasons for addressing sustainability include improving operational efficiency and lowering costs. The share that said this jumped 14 percentage points since last year, to 33 percent, edging out corporate reputation, selected by 32 percent of respondents.
Sustainability Can Play a Role in Any Value Creation Strategy
The study identifies three different levers that companies can use to create value — growth, return on capital, and risk management — and finds that sustainability has a role to play in all three. According to McKinsey’s framework, a growth strategy may involve innovation and new products or reaching new customers and markets; a strategy of improving returns on capital might feature increasing the environmental performance of operations; a risk management strategy could entail regulatory or reputational management. The study found that some value strategies are more common than others.
Sustainable Growth Strategies Relatively Rare among Rank and File Companies
Companies are utilizing sustainability tactics in all three value creation strategies, according to the survey, but growth strategies powered by sustainability are relatively rare. About twice as many executives say their companies are reducing energy usage than say they are reaching new customers or markets as a consequence of their sustainability activities, for instance. Just 18 percent of companies said they were able to achieve higher prices or greater market share from sustainable products.
Leaders More Likely to Employ Growth Strategies
Leaders are more likely to employ sustainability growth strategies than the rank and file, according to the study. Individuals were classified as leaders if they said that sustainability was a high priority and was managed well at their company, along with some other criteria. According to this segmentation, sustainability leaders were more than twice as likely as non-leaders to be pursuing a sustainable growth strategy. Indeed, they were more likely to be engaged in any of the three value creation strategies than non-leaders. One implication seems to be that as companies elevate the priority of sustainability in their organizations and improve their ability to manage sustainability initiatives, a broader range of options for creating value opens up to them.
Green Research Insight
Green Research recently published a study of the best practices for setting and managing sustainability goals. Among the findings: ensure clear accountability for sustainability performance; tie compensation to achievement of sustainability goals; regularly review sustainability KPIs. McKinsey’s study found that companies in the leaders group were more likely to do all of those things. That’s good validation of the importance of these best practices.
Other Studies Featured This Month
Using Scenarios to Plan for a Sustainable Future
U.K. think tank Forum for the Future released a new study aimed at helping consumer product companies plan for and adapt to changing consumer preferences and behaviors, with an eye on sustainability. The study, Consumer Futures 2020, presents four different but entirely plausible scenarios that explore how patterns of consumption and consumer behavior may have changed by 2020. Forum for the Future says retailer Sainsbury’s and consumer goods maker Unilever are already using these scenarios to explore new ways of collaborating on initiatives that will deliver sustainability and commercial benefit to both organizations.
Environmental Issues at the Bottom of the List in Chief Marketing Officer Study
In the first half of this year, IBM conducted over 1700 in-person interviews with chief marketing officers (CMOs) in 19 industries and 64 countries. Each CMO was asked to prioritize a list of eight external forces in order of the impact it was having on his or her organization. As in a similar study of CEOs last year, the respondents identified market factors and technology factors as the top two most important forces. And they put environmental issues at the bottom of the list. So much for sustainability as a driver of corporate strategy.